No Section 8 Recovery for Being Kept out of a Market Which the Generic Had No Right to Enter

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Until recently amended, the NOC proceedings and infringement actions were separate, and a declaration of invalidity in an NOC proceeding did not have in rem effect. This raised the possibility that the generic might prevail in the NOC proceeding, and lose in the subsequent action. If the generic prevailed in the NOC proceeding, it would be entitled to damages under s 8 for having been kept out of the market by the statutory stay on the issuance of the NOC. But if it lost in the subsequent infringement action, this means the patent is and always was valid, and it seems wrong to award the generic damages for being kept out of a market which it had no right to enter.

Now that the NOC Regulations have been amended to turn the NOC proceedings into an action, this particular problem will no longer arise, but a closely related problem remains. What if the product is covered by two patents, and the generic wins the NOC proceeding/ action in respect of one patent, but loses in respect of the other? Again, the generic will be entitled to s 8 damages for being kept out of a market which it had no right to enter. That problem arose in this case. Both the 2,133,762 patent and the ‘693 patent were listed on the Patent Register against LOSEC. Apotex prevailed in NOC proceedings related to the 2,133,762 patent (2004 FC 313, holding infringement was not established), but then lost in respect of the ‘693 patent, which gave rise to the litigation in this case.

The problem had earlier been addressed in respect of this very patent in the s 8 proceedings arising from the ‘762 patent: 2012 FC 559 Hughes J (here) aff’d 2013 FCA 77 (here) motion for reconsideration dismissed, 2016 FCA 194. AstraZeneca raised the relevance of the then ongoing infringement action in respect of the ‘693 patent, asking for a stay of the s 8 proceedings pending the ‘693 action. Hughes J refused, saying the following [148], in a passage affirmed and quoted on appeal [6]:

A Court hearing the pending infringement action, if it concludes that the patent is valid and has been infringed by Apotex in making the omeprazole drug that is the subject of these proceedings, can at that time craft a remedy that is appropriate, having in mind any compensation awarded in these proceedings.

(See similarly 2011 FCA 364 (blogged here).) Since Barnes J is now that very “Court hearing the . . . infringement action,” Barnes J was on firm ground in concluding that:

[214] What I take from the above-noted statements and particularly those of the Federal Court of Appeal is that, as the section 8 reference Judge, I have the discretion to take into account the intervening infringement finding, among other relevant facts, and to craft an appropriate remedy.

The question then is how to properly exercise that discretion. The FCA had dropped some strong hints. In 2013 FCA 77 [7] the Court stated:

It will be for the judge trying the infringement action to ensure that overall, taking both proceedings together, a party is compensated for its provable loss, if any, on proper principles, no more and no less.

The FCA repeated this in denying the motion for reconsideration: 2016 FCA 194, [24]. Similarly, in the Lovastatin decision, 2011 FCA 364 (blogged here) the FCA held:

[37] [S]ubsection 8(5) confers a broad discretion on the court when assessing the amount of compensation that the second person must pay. It provides that the court “shall take into account all matters that it considers relevant to the assessment of the amount,” including any conduct by either party that contributed to the delay in the disposition of the first person’s application for prohibition. In my view, this provision enables the Court to determine in its discretion whether, and to what extent, a second person’s claim for compensation should be reduced, or eliminated.

On the facts of this case, Barnes J notes that :

[217] What I am left with is a situation where, in order to recover its “losses” from being barred from selling Apo-Omeprazole between January 3, 2002 to December 30, 2003 in the face of AstraZeneca’s 762 Patent, Apotex necessarily had to infringe AstraZeneca’s 693 Patent.

In other words, Apotex was seeking damages for having been kept out of a market that it had no right to enter. Unsurprisingly, Barnes J concluded that:

[219] It follows that Apotex is not entitled to recover under section 8 of the NOC Regulations because it suffered no loss by being kept out of the marketplace between January 3, 2002 and December 30, 2003.

I believe this is the first decision to directly so hold, but this conclusion was strongly foreshadowed in the prior decisions, and I don’t doubt that it will be upheld on appeal and followed in the future.